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Barron's: "Will Natural-Gas Prices Continue to Deflate?"Investors' Soapbox PM | TUESDAY, APRIL 27, 2010 Will Natural-Gas Prices Continue to Deflate? Canaccord Adams is lowering its gas price forecasts for this year and next. Canaccord Adams: WE ARE LOWERING OUR 2010 natural-gas price forecast by $0.75 per thousand-cubic feet to $5.25 per thousand-cubic feet and lowering our 2011 gas price to $5.75 per thousand-cubic feet. Admittedly gas-production declines in the U.S. have been slower to materialize than we expected, but the mild weather in the last several weeks of the heating season, and the resulting 100 billion-cubic feet of additional gas in storage, was our tipping point on gas-price expectations for 2010. It is not all bad news on the natural-gas front, however, as Canada is still showing a year-to-year decline in production while U.S. demand-data points are turning positive. In particular, gas-fired power demand continues to show healthy year-over-year growth, up 1.4 billion-cubic feet per day for the first three months of 2010 relative to the same period last year. This should also be helped throughout the year as the coal/gas ratio continues to move up, hydro-power levels are impacted by low-snow pack, and the coming summer cooling season has favorable weather comps due to mild temperatures last year. Combined with better industrial demand (chemicals and metals), we still see a tighter market than last year and expect to see 0.3-0.5 billion-cubic feet per day year-over-year incremental-LNG imports to refill storage to full. We are sticking with our 2010 and 2011 WTI oil-price forecasts of $80/per barrel and $85/per barrel, respectively, as improving economic conditions and OPEC compliance continue to suggest a tightening market. Global-demand growth, or more accurately global-demand expectation, continues to drive crude prices. The crude markets have finally shifted from overbalanced to underbalanced, with OECD inventories now in decline (2,685 million per barrel vs. 2,731 million per barrel at the same time last year). We expect to continue to chip away at global crude inventory levels throughout 2010 and 2011 as we remain optimistic about global economic recovery. We expect a 100k barrel per day decline in global inventories this year, pulling OECD forward days of supply down to 58 by October, or two days below year-ago levels. -- Irene Hass |
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